Rabobank: PEDV to Trim U.S. Pork Production 6% to 7% in 2014

March 25, 2014 04:00 AM



Rabobank's Food and Agribusiness Research and Advisory team says the outbreak of Porcine Epidemic Diarrhea Virus (PEDV) so far has reached 60% of the U.S. sow herd, 28% of the Mexican herd and is starting to impact the Canadian herd. It says if the virus continues to spread in Canada and Mexico at the pace seen in the U.S., North American hog slaughter could decline by 12.5% from 2013 levels. It says U.S. pork production is expected to decline by 6% to 7% in 2014 from 2013 levels.

"In the U.S., we see the outbreak of PEDV causing a significant shortfall in the availability of market hogs in 2014 -- to the tune of 12.5 million hogs or 11% of annual slaughter," explained Rabobank Analyst William Sawyer. "Given the ever rising number of PEDV cases reported, coupled with a six-month average lifecycle, the months of August through October are likely to be the tightest for processors, where slaughter could decline by 15% to 25% against 2013 levels. If the virus continues at its current rate, the shortfall to U.S. slaughter in 2014 could be as much as 15 million hogs."

In regard to productivity, Rabobank says 2014 will be a story of "the haves and have-nots" where hog producers who experienced mild cases of PEDV, or none at all, could realize margins of more than $60 per head, the highest calendar year average seen in Rabobank's 40-year record. "Conversely, hog producers who have had difficulty eradicating the virus could suffer significant losses as the pain of the high fixed costs of modern hog production compounds prolonged periods of weak productivity," states the report.

Rabobank says packers for the year to date have been in a "haves" position as the fear of possible stockouts have pushed pork cutout prices up much faster than hog prices. "The gross margin for packers reached $63 per head, up from $37 this time last year. Profitability is likely to wane in the spring and summer, as prices continue to climb, testing pork demand, and hog shortages force packers to idle plants," it states.

Additionally, Rabobank says the real winner in the PEDV situation, however, will be the U.S. poultry industry. "U.S. beef production is forecast to decline by nearly 6% in 2014 and, coupled with Rabobank's estimate of 6% to 7% less pork production, this implies an exceptional opportunity for the U.S. chicken industry as the protein of last resort," states the group. "U.S. chicken production would have to rise by 8% to 9% to offset the shortfall from beef and pork, but a limited breeder flock and continued high demand for fertilized eggs from Mexico will keep supply growth restrained. As a result, Rabobank expect chicken prices and margins to climb this spring and summer, yielding a very favorable year for the U.S. chicken industry."

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